3 Employee Errors That Cost Businesses Big-Time

Managing employees comes with hidden costs. Find out how to protect yourself from situations that can emotionally and financially devastate a business.

It’s a given that all employees will make an honest mistake that will cost their employers some money. These simple mistakes and miscalculations are forgivable. However, there is another type of employee error that can be emotionally and financially devastating to small-business owners. The worst ones, of course, require a phone call to an attorney.

Here are three types of unwelcome employee-caused gotchas that can easily wipe out a small-business owner’s year-end profit and bonus pool. Are you adequately protected? Read on to find out.

Co-worker harassment

Federal regulations prevent a broad range of workplace harassment, including bullying, coercion, intimidation and unwelcome sexual advances. Employers can become liable if an employee harasses a subordinate or if the employer fails to correct behavior or activity that makes a workplace a “hostile environment.”

A sexual harassment claim can happen in a big corporation or a small website design company. And even if a case has no legal merit, business owners still have to spend time and hard cash defending the company and its reputation. The resulting legal bills can run a fast five figures.

The starting point for minimizing the incidence of employee harassment claims is to teach supervisors and staff members what exactly constitutes workplace sexual harassment. This is also a good time to set rules forbidding employees from visiting porn sites on company time or transmitting suggestive emails to co-workers. In addition, business owners can obtain an employment practices liability insurance (EPLI) policy that generally covers employee sexual harassment, discrimination and wrongful termination claims.

Traffic accident liability

Do you or your staff members conduct business by cell phone while driving a car? It’s easy to do in our mobile economy. But what if a staff member becomes distracted on a business call and is the cause of a car accident in which someone is seriously injured or killed? Who is liable for a wrongful injury or death claim — your company or your employee’s car insurance carrier? The answer is now working its way through the court system, which means that some businesses are paying out of pocket for hefty legal bills.

Several years ago, Oprah Winfrey publicly announced that her employees could no longer conduct business by cell phone while driving in a car. Further, she also asked vendors not to communicate with her company while driving in a car. If you are not yet ready to institute a ban on business-related cell phone use while driving, take some time to think about the unthinkable. Talk to your business insurance broker about worst-case-scenario coverage, including legal costs. Companies that don’t have specialized liability or fleet insurance may not have any coverage for this kind of disaster.

Employee theft and fraud

The numbers are difficult to confirm but different studies estimate the cost of employee theft, especially in retail businesses, to be in the billions. Workplace theft is more sophisticated and costly than employees simply poaching low-cost office supplies. Employees can receive kickbacks from vendors who pad invoices; bill for unworked overtime; withhold payments from cash customers; or divert goods from offsite supply chain partners.

Years ago, I caught a new accounting employee who forged my name to some pilfered company checks. The fraud was caught fast only because I monitor accounts receivable and accounts payable like a hawk — obviously better than my chief financial officer. Other business owners I know are not so lucky. One colleague lost more than $600,000 over several years through clever payroll fraud.

The best way to uncover employee theft is to shake up the office routine and not assume that all of your accounting, inventory and payroll management staff members are entirely honest or inclined to report dishonest co-workers. Consider hiring an independent security or forensic accounting firm for a surprise review of your company’s operations. When employees know the top boss is watching, they may be less likely to risk adding a criminal record to their post-pink-slip resume.